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Selling Off Subdivided Land And Restricting Its Use

15 September 2011

Several years ago Alex subdivided two extra titles off the main title to his dairy farm. These two extra titles could be built on and sold as lifestyle blocks. Although Alex did not intend to sell off the lifestyle blocks at the time he subdivided the farm, he wanted to preserve his right to subdivide in future in case the district plan changed.

Alex came to see me recently as he has now decided to sell the two lifestyle blocks. Alex wanted to know if he could make sure that the homes built on the lifestyle blocks were up to a high standard. The lifestyle blocks are next to a swampy area. Alex is opposed to duck shooting and wanted to prevent the new owners from duck shooting from the lifestyle blocks. He had also heard about farmers having problems selling lifestyle blocks to townies who then complained about the noise and smells from normal farm activities. Alex wanted to prevent the new owner from complaining about the noise from his tractors and motor bikes, the smell from his cows, and any weed spraying or fertiliser application on his farm.

 

Land Covenants - A Solution

Alex could place restrictions on the use of the land he is selling by arranging for “land covenants” to be registered against the titles to his farm and the lifestyle blocks. A “covenant” is a promise recorded in a deed. The land covenants could state what could and could not be done on the lifestyle blocks. (The covenants stating that the owners of the lifestyle blocks could not object to Alex’s farming operations are called “reverse sensitivity” or “no complaints” covenants.)

Alex could either register the land covenants against all the titles before he sells the lifestyle blocks, or could arrange to register them at the time the lifestyle blocks are transferred to the purchasers. If the land covenants were to be registered at the time the lifestyle blocks are transferred, then Alex would need to include details of them in the sale and purchase agreement.

Anyone who became the owner of one of the lifestyle blocks would be bound by the land covenants while that person was the owner. If the owner of the lifestyle block did not comply with the land covenants, Alex could take legal action against that owner to enforce them. The land covenants could also state what Alex could do if the owner did not comply with them. For example, if the land covenant stated that the house to be built on the lifestyle block had to be a certain size and had to be made of certain materials, the owner could be compelled to remove it if he or she built a house that did not comply. The owner could also be liable to pay Alex a fixed amount if he or she did not comply with the land covenants.

If Alex sold his dairy farm, the new owner of the farm could enforce the land covenants. If Alex wished to be able to enforce the land covenants against any future owner of the lifestyle blocks after he had sold his farm, then a different type of document called a “memorandum of encumbrance” would have to be registered against the titles to the lifestyle blocks.

It is now possible to create and register a wider range of land covenants than in the past. Some of the land covenants registered in the past are unenforceable, either because they are poorly drafted, or the law would not support them. The land covenants should therefore be carefully drafted to ensure that they provide Alex with the solution he is seeking.

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.

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Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.